End of the double-dip recession? Light at the end of the tunnel at last, as economy rallies

Light relief: Signs of economic recovery will be welcomed by Chancellor George Osborne as he grapples with dire public finances

Figures this week are expected to signal the end to the double-dip recession and point to an economy heading back to growth.

The scale of the shrinkage in gross domestic product in the second quarter has already been trimmed from 0.7 per cent to 0.5 per cent and the betting in the City is that Thursday’s third and final estimate will revise the fall to just 0.4 per cent.

That would give a fair wind for the third quarter to show a strong return to growth, helped by the Olympics and improved industrial production. But the wild card is that nobody knows whether the London 2012 Games added to economic activity or merely displaced it.

Even a strong performance in the third quarter is unlikely to prevent a minus sign being put in front of growth for the year as a whole.

‘We suspect the economy will struggle to grow by more than about 0.25 per cent in the fourth quarter,’ said Howard Archer, economist with independent forecaster IHS Global Insight. ‘As a result, we see gross domestic product contracting by 0.3 per cent overall in 2012, as growth in the second half is insufficient to offset the contraction suffered in the first half.’

The first estimate of third-quarter growth is due on October 25 and will be helped by a statistical quirk under which all ticket sales for the Olympics will appear in these figures, regardless of when they were actually sold. This factor alone will add at least 0.1 of a percentage point to GDP.

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Trevor Williams, chief economist for wholesale markets at Lloyds Bank, said: ‘I am expecting the second-quarter figure to be revised again to a fall of 0.4 per cent.

‘If it is, that would mean we have already seen a 0.3 of a percentage point improvement on the original estimate. The third quarter ought to see quite a strong bounceback, both in terms of recovering from three quarters of negative growth and in terms of the Olympics effect.’

Peter Dixon of Commerzbank said: ‘On the face of it, there should be a notable move back into growth in the third quarter.

‘The recovery from the Jubilee Bank Holiday will make a positive contribution. But the unknown factor is the extent to which London 2012 displaced economic activity rather than adding to it.

‘For instance, hotels were not so full and a lot of people decided to work from home.’Archer added: ‘Just as the second quarter contraction of 0.5 per cent overstated the economy’s weakness, so will the third quarter overstate its recovery.’

Signs of economic recovery will be welcomed by Chancellor George Osborne as he grapples with dire public finances.

Sentiment shifts towards optimism

'We would expect to see some bounceback in the third quarter, with consumer spending supporting gentle recovery, both in the second half of this year and continuing into next year.

'Although output has contracted in each of the past three quarters, the underlying picture is probably not as weak as the headline data suggest.

'The extra bank holiday in June is likely to have reduced output in the second quarter by about half a per cent, an effect that should unwindin the third quarter.' Sir Mervyn King, Governor of the Bank of England

'I have lived and worked through every recession since the mid-Fifties and I cannot recall one where unemployment went down and employment went up (despite a rapidly increasing working population) quarter after quarter while at the same time gross domestic product went down.

'The internet has transformed business over the past few years and my suspicions are that the GDP survey does not fully account for internet trading and all the inadvertent exporting created by so many websites. In short, I am optimistic for the future. Lord Young, former ConservativeTrade Secretary

'After the longest double-dip recession since records began, a strong GDP rebound is the minimum expected this autumn.

'But let us not kid ourselves that one set of positive data constitutes a recovery. A proper recovery requires economic growth, healthier wage rises and more full-time jobs.

'Moreover we need to see growth spread across industries and in all parts of the UK. Brendan Barber, General Secretary, Trades Union Congress

'Underlying activity should improve during the second half of this year. Lower inflation will ease the squeeze on real incomes and should enable a gradual recovery in consumer spending to develop.

'Companies will not begin to contribute to the recovery unless investment and dividends move up much more sharply. However, thereis a good chance that they could surprise us on the upside. Professor Peter Spencer, Chief Economic Adviser to the independent Item forecasting group

'We have done well in the UK, but I do not think we can attribute that to “green shoots”.

'Britain may have bottomed out, perhaps that is a better way of putting it.

'The UK for us is a sort of outlier; the book-ends in Europe are Germany and the UK, with France, Spain and Italy under pressure in the middle.

'Business in Britain was up eight or nine per cent for us last year. This year it won’t be so strong, but it will still be stronger than the rest of western Europe. And we have added jobs. We’ve gone from 12,000 to about13,500 jobs in the UK. Sir Martin Sorrell, Group Chief Executive, WPP